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Aussie shares suffered their biggest setback in a month as global markets continue to adjust to the prospect of higher official rates as soon as next year.

The S&P/ASX 200 fell 133.6 points or 1.81 per cent, its heaviest loss since May 19.

Banks and miners led the retreat. Tech stocks and supermarkets cushioned the market from a deeper fall.

At this morning’s low, the index was down 152 points and on track for its worst session since a 161-point plunge on February 26.

What moved the market

The domestic benchmark, which cracked 7400 last week, came within 16 points of breaking below 7200 this morning as the ASX played catch-up with a sour end to the Wall Street trading week. The Dow skidded 533 points on Friday to extend its weekly loss to 3.45 per cent.

US futures continued to flounder this afternoon in a sign the market may have further to fall after a leading Federal Reserve official argued rates should rise next year. S&P 500 futures were down 17 points or 0.4 per cent as the Australian session ended.

Friday’s intervention by St Louis Fed president James Bullard further unsettled a market still coming to terms with the idea of rate hikes in 2023. Cyclical stocks led the sell-off as traders fretted about a slowdown in the economy if the Fed starts to winds back its bond-buying program and raises rates.

“Investors may be interpreting the Fed’s hawkish tilt Wednesday as a sign that an extended US post-pandemic economic expansion may be a bit harder to achieve in a potentially emerging environment of less accommodative monetary policy,” Goldman Sachs’ Chris Hussey wrote.

The Reserve Bank has so far stuck to the mantra that weak wages growth and low inflation mean the cash rate was unlikely to go up until 2024. However, last week’s huge drop in the jobless rate from 5.5 per cent to 5.1 per cent may force a rethink.

Westpac Chief Economist Bill Evans predicted the bank will have to move early in 2023. Mr Evans said the May employment report was “a major game changer for policy”.  

Today’s only significant piece of domestic economic data showed retail sales increased a smaller-than-expected 0.1 per cent last month. Coronavirus restrictions in Victoria accounted for some of the slowdown in growth following four months of 1%+ increases.

Japan’s export-driven market took the biggest hit as Asian markets saw red. The Nikkei 225 fell 3.66 per cent. The Asia Dow slumped 1.96 per cent, Hong Kong’s Hang Seng 1.55 per cent and China’s Shanghai Composite 0.25 per cent.

Winners’ circle

Winners were scarce at the top end during a rugged start to the week. BNPL leader Afterpay climbed 2.46 per cent, gold miner Newcrest 0.35 per cent and property giant Goodman 0.1 per cent.

Supermarkets Coles and Woolworths added 0.67 and 0.82 per cent, respectively. IGA operator Metcash gained 1.98 per cent.

Select REITs picked up some defensive buying. Charter Hall Retail gained 0.52 per cent, Dexus 0.84 per cent and Cromwell Property 0.55 per cent.

Health stocks also saw selective interest. Ramsay Health Care put on 1.47 per cent. Fisher & Paykel Healthcare added 0.98 per cent.

In the tech space, Afterpay was joined in the winners’ circle by Megaport +2.27 per cent and Altium +2.08 per cent.

Doghouse

CBA fell a chunky 5.43 per cent as the financial sector bore the brunt of the sell-off. The largest of the big four announced it will offload its general insurance business to the privately-owned Hollard Group for $625 million, plus deferred milestone payments. The asking price was reportedly lower than some analysts anticipated.

ANZ dropped 3.11 per cent, NAB 1.67 per cent and Westpac 2.72 per cent.

Bank of Queensland announced the state government had cleared the way for it to acquire Members Equity (ME) Bank. The acquisition, for $1.325 billion in cash, is scheduled to complete on July 1. Shares in the bank fell 4.98 per cent.

BOQ Group Managing Director and CEO Mr George Frazis said, “The addition of ME Bank to the BOQ Group will further strengthen our multi-brand strategy, deliver material scale, broadly double the size of our Retail bank, and provide us with geographic diversification.”

The miners followed iron ore and metals lower. Rio Tinto lost 2.77 per cent, Fortescue 2.72 per cent and BHP 1.96 per cent.

AusNet sank 2.19 per cent after admitting it may have underpaid some employees. Remedial costs were not expected to have a material impact on earnings.  

Starpharma skidded 9.41 per cent after the UK regulator objected to promotional claims about the biotech’s antiviral nasal spray, prompting a pause in sales. Starpharma said the dispute related to promotional references to Covid-19, not the spray’s safety or quality. Sales would continue in mainland Europe and India.

The launch of an oral contraceptive in the US helped lift Mayne Pharma briefly before its shares faded 4.19 per cent. Nextstellis was approved in April. The company also announced it had licensed the Australian rights to treatments for solar keratosis.  

Other markets

Oil pared morning gains. Brent crude trimmed its advance to nine cents or 0.12 per cent at US$73.59 a barrel after earlier trading above US$74.

Gold rebounded $1.90 or 0.11 per cent to US$1,770.90 an ounce.

The dollar eased 0.1 per cent this afternoon to 74.93 US cents.

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